Balanced Scorecard: give your business the right direction

The Balanced Scorecard is an effective method to monitor business performances, allowing you to monitor and improve your business' internal processes.

There are definitely times when you wonder how is proceeding the life cycle of your company: a company goes through good times as well as bad ones, and I'm sure that you have the foresight to recognize them immediately. The problem is that, in both cases, it is difficult to foresee and understand the causes: just happens that you find yourself in it.

But what would happen if you could have the reins of the game in your own hands? If you could give a certain direction to your business? If you could understand in advance that something's going wrong and if you could fix it immediately, avoiding to find yourself in a very unpleasant future? I believe you'd be really happy.

Now you'll be thinking that only someone with some strange power can do something like that, "foreseeing the future". But you're wrong. There's an instrument that will allow you to do that.

This instrument is the Balanced Scorecard (a.k.a. BSC) and was invented in the early 90's by Robert Kaplan and David Norton: it's a business strategies measuring method that consider financial variables balancing those (and for the time this was revolutionary) with others variables that don't really concern with the economical field. It's used to monitor and evaluate the quality of the path that you intend to follow to achieve your goals: this is possible because every strategy is seen as a set of measurable entities called key performance indicators or KPIs.

In this way, with the BSC we'll be able to find a balance between financial performances and non financial performances, making it a powerful tool for the management control.

Let's see how it works.

It allows you to focus on the company evaluating it from four different perspectives:

  • Customers;
  • Internal processes;
  • Learing and growth;
  • Financial.

These four macro areas will include some objectives, that could be achieved by using strategies that are evaluated using KPIs. Let's see them more in detail.Balanced Scorecard1 Customer perspective

The main goals of this perspective are to increase your brand awareness, to satisfy customers and gain new clients and make the people feel your company in a positive way. To measure these results and to understand at what step of the strategy you are, you should consider the kpis that are most important to you, imposing to reach your goal in a certain period of time.

Let's make an example: let's say you've invested in an advertising campaign and that you expect to acquire 100 new clients; if, after launched, it will gain only half, you'll know in advance that there is something that should be changed in the method you used, so you won't propose it again in following campaigns. If instead it will acquire 100 or more, you can repeat that format in future campaigns because you're sure it works.

You could use this strategy for all the KPIs and in this way you'll be able to fix what's wrong limiting the damages, and keep on with what's working well.

Perspective of internal processes

In this macro area you'll have to consider the processes for the creation of value and market relations, like the production process and the innovation of the product, the distribution and the post-sale assistance. You'll have to make sure that the characteristics of your product comply the requests of the customers.

In this case KPIs to keep under control will make you understand which are the aspects to improve and what you can keep doing to benefit your business. For example you could measure the number of customer that need post-sale assistance: if the number is high you'll have to act on some characteristics of your product in order to make it more simple to use and to create less problems to your customers, this will contribute to improve the value of your brand.

Perspective of learning and growth

Looking at the company from this perspective will help you to consider the welfare of your employees and their good training. Only through a non-stop updating and the cultivation of their passions your employees could fully bring benefit to your company: being satisfied with their work, people can successfully transfer the essence of your brand and pass on to the new employees the necessary know-how.

In this case, one thing to keep under control is the quality of the work that an employee can create: if he exceed a certain level you could give him a promotion, instead if he can't reach it you could dig deeper to understand what's the real problem.

Financial perspective

The parameters that refer to the economic and financial sphere are certainly monitored, but their importance should be balanced with the others: this is what makes the difference with the measurement methods previously used, which were focused too much on revenue neglecting other crucial aspects of enterprise.

What do you think about this method? Do you already use it in your company or do you prefer others way to do it?

Thanks for reading the article.

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